Paramount Ready to End Movie Sales to Showtime

null|The New York Times

Monday, 21 Apr 2008 | 1:39 PM ETThe New York Times

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The sibling rivalry that is Sumner M. Redstone’s media empire turned more fractious on Sunday, as Viacom’s Paramount Pictures movie studio said it would start its own premium television channel, ending a longstanding relationship in which it sold its movies to CBS’s Showtime.

Unable to reach terms with Showtime, Paramount said it would join forces with two other studios, MGM and Lionsgate, to introduce a premium channel and video-on-demand service beginning in the fall of 2009.

Both MGM and Lionsgate are also suppliers of movies to Showtime but will stop after the new deal is done. "We wanted to control our destiny,” said Philippe P. Dauman, president and chief executive of Viacom, which will be the majority shareholder in the new venture to be managed through Viacom’s MTV Networks. “We wanted to create a flexible service. There are a lot of restrictions in pay-TV deals as they stand now.”

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The deal raises the question of how Showtime will fill the feature film portion of its programming slate. Showtime pays more than $100 million a year to the studios to show their movies. Other major movie studios like Walt Disney, Warner Brothers and Universal are all locked in to pay-TV deals with HBO and Starz.

“We wish them well,” said Matthew C. Blank, Showtime’s chief executive, in an interview. “We’re pleased with the current success based on our original programming and feature films, and believe it will continue into the future. We have enough films from those suppliers to last until 2011.”

Showtime’s deal with Paramount, which began in 2002, ended with Paramount’s 2007 slate, but the channel still has the rights to show those movies for some time. Its deals with MGM and Lionsgate include the films those studios produce through the end of 2008.

The new venture could create some awkward moments around Hollywood. Leslie Moonves, the chief executive of CBS, is close friends with Harry E. Sloan, the chief executive of MGM, and Jon Feltheimer, the chief executive of Lionsgate. A spokesman for CBS declined to comment.

When CBS reported its fourth-quarter earnings in February, Mr. Moonves seemed confident of renewing Showtime’s deals with the studios. In a conference call at the time, he said, “I think some of them will happen over the next few months.”

In addition to airing the films produced by the three studios, the new channel — which does not yet have a name, nor any distribution arrangements with cable or satellite companies — will also show original series created by the studios. In essence, the three parties are aiming to compete with HBO and Showtime.

For those who pay attention to Mr. Redstone’s machinations, the deal is significant for two reasons. One, it is essentially a shot across the bow from one side of the Redstone empire to the other, from Viacom to CBS. And second, it signifies that Paramount is becoming more serious about building a television production unit, a business that had gone to the CBS side after Viacom was split into two.

Brad Grey, chief executive of Paramount Pictures, was an executive producer of HBO’s hit “The Sopranos” and has been slowly rebuilding Paramount’s television production business.

Mr. Dauman said Sunday in an interview that starting their own channel would give the studios more flexibility in terms of when movies are shown as well more control over how movies are distributed on platforms like the Internet.

Mr. Redstone, frustrated by Viacom’s lagging share price, announced in 2005 that he would split his empire in two: Viacom, which includes Paramount and MTV; and CBS, which includes the CBS broadcast network and Showtime.

Last month Mr. Redstone, who is the controlling shareholder in both Viacom and CBS, was asked at an investor conference about the two companies entering each other’s business. “They were always intended to be independent companies, free to compete with each other,” he said.